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Below is Comment on RBI monetary policy-out of cycle rate hike By Mr. George Alexander Muthoot, MD, Muthoot Finance.

“Given that the RBI Governor had already highlighted his concerns over inflation and downside risks to growth emerging on account of escalation in geopolitical tensions during his last monetary policy announcement, thus the hike in rate was expected, but the timing was a surprise. The RBI has hiked the repo rate by 40bps to 4.4% and hiked CRR by 50bps to 4.5%. We understand that the uncertainty evolving around geopolitical tensions, high inflation rate due to hike in global oil prices and food prices are likely to elevate the input cost pressure and further pose a challenge. However, since we are witnessing signs of recovery in the economy, the RBI rate hike may not dampen overall demand scenario. There is adequate liquidity for productive requirements of the economy and as such borrowing cost in the system may go up at a gradual pace. We believe this is surely the beginning of the RBI rate hike cycle, although in a calibrated manner to respond to the evolving growth-inflation situation. The RBI has also reiterated that they will ensure adequate liquidity in the system to meet the productive requirements of the economy in support of credit offtake and growth.”

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